presented to Martin Hughes of Toscafund. Given the increasing cost of funding, she wondered if we would need to make people redundant. Martin was adamant that we should carry the cost of excess staff until the business was thriving again — he just didn’t want the spectre of job losses to mar our bank. Like most really successful people I’ve met, Martin was more interested in doing the right and proper thing than the easy and expedient one.
Every night at 6 p.m. the Virgin team hooked up for a conference call led by Stephen and Gordon. It was our opportunity to catch up with each other and agree the next steps. Ours was a collegiate approach, using the wisdom of seasoned banking professionals, each of them a veteran of a significant merger deal. No one else had this treasure chest of knowledge, and I was extremely proud that the Virgin name could attract such top-notch people. In business, this kind of team support is in surprisingly short supply.
Wilbur Ross was a hard taskmaster. Jayne-Anne sat up till the small hours on a number of occasions as he stress-tested her on all the downside scenarios. My business view is always to protect the downside — and this was one of Virgin’s biggest ever gambles. Wilbur was much more interested in how much he could lose, rather than how much he could gain. In major bids like this, involving billions of pounds, success comes from identifying the downside — and covering it — far more than planning for the upside. Wilbur wanted to make sure that we were prepared for every eventuality. He became convinced that we were. Sir Brian, the FSA and the Bank of England agreed, and declared us their preferred bidder.
The hedge-fund investors — who had been betting on the share price — were livid at the prospect of us taking over. As we approached Christmas, the credit squeeze was getting tighter and tighter. All over the City, major banks were announcing problems caused by a lack of liquidity. While our lines of funding with RBS and their partners were still open, the cost of that funding was getting more expensive. We began to look at our numbers and we all agreed it was becoming too expensive to borrow. It was starting to look unattractive for us — and we considered withdrawing. It was then that the Bank of England and the government stepped in and offered support by suggesting ‘wrapped sovereign bonds’. These were bonds or gilts issued by the government and paid for at a commercial price. All of the bidders would have access to this funding, and so the merits of each proposal could at last be considered with a degree of objectivity.
This would certainly ease the pressure on us, because we knew our bid was already in very good shape.
True, we would as a consequence face stringent European Union restrictions on fair trading. If we were getting government-backed bonds, this would give us an advantage over commercial banks, and we would have to be restricted when competing with them, until we’d paid these loans back. This was only fair, and we had no problem with it. The government said that there would be no dividends until the UK taxpayer was paid back. This, too, was only reasonable: Virgin would have repaid the money back to the taxpayer before we took anything.
The Virgin team were interested and waiting for a term sheet to come out from Goldman Sachs just as I was heading out to China on a high-level business trip with senior British business figures and Gordon Brown, the prime minister.
We were delayed in leaving because of the emergency landing of British Airways’ Boeing 777 at Heathrow. They had lost power in both engines as they descended, and through the immense skill of the pilot the plane had crash-landed on the grass before the runway saving everybody on board. I’ve had my run-ins with BA over many years but you have to hand it to them: they employ first-rate flight crews. The atmosphere on our flight was one of quiet elation, the surroundings reminding us of the life-saving efforts of the 777’s captain and first officer.
When we arrived in Beijing, I phoned Jayne-Anne asking if the Goldman Sachs package had come in yet.
‘Yes, it’s just come through.’
‘Good,’ I said.
‘What’s been happening on the flight?’
‘What do you mean?’
‘It’s all over the news that you and Gordon Brown have been having private talks about Northern Rock.’
‘Ha ha.’
‘No. Not 'ha ha'. What are you up to?’
There was a long pause.
‘Jayne-Anne, please tell me you’re joking about this.’
‘It’s on the news now,’ she said.
There were forty journalists at the back of the plane, and one of the rival consortium’s PR advisers. Gordon Brown had passed through the plane to talk to them, pausing to tell me what he then told them: that he’d be issuing the Goldman Sachs term sheet to all the bidders within the next twenty-four hours.
That was it. Nothing else. At any time. Never mind in front of forty journalists and a pack of hedge-fund managers who wanted me out of the picture!
Yet the entire China trip was to be coloured in the British media by a supposed ‘sweetheart deal’ between me and Gordon Brown. The herd instinct of the British media did lasting damage to our chances. There were even cartoons of Gordon Brown being in my pocket — and I being in his. Whether it was malicious or simple over- exuberance, I’ll never know. We were told that the prime minister and the Treasury still favoured a private sector deal, but I think the whole Chinese episode must have influenced his team’s eventual thinking.
The media played a major role, even beyond the China trip, in the whole evolution of the Northern Rock story. During the crisis, Bryan Sanderson, now Northern Rock chairman (after Matt Ridley’s resignation), told Jayne-Anne that every paper had a journalist dedicated to the story and that they were being told to come up with a new story every day — that made for too fertile a field of gossip!
The Treasury didn’t help matters when it started negotiating in the press, too. John Kingman, the civil service power broker in the Treasury charged with running the show, actually told our team that, in any decision made, the government would have to take account of the view of Robert Peston, the BBC’s business editor. Now Robert is a very likeable guy and a good journalist, but we thought it was odd that he often had information about our proposal before we were told!
The most bizarre coverage for Jayne-Anne followed an early-evening call she had with Kathryn Griffiths at the
He went on to say: ‘We’ve satisfied ourselves that with the capital we are putting in we’d have enough pure equity in this thing that, if the worst came to the worst, the shareholders would lose money, not the taxpayer.’ Yet the whole Branson–Brown ‘sweetheart deal’ notion began to grow arm and legs. It even reached Prime Minister’s Questions in the House of Commons on Wednesday 23 January.
David Cameron, the leader of the Conservative Opposition, asked Gordon Brown about the taxpayers’ exposure under the prime minister’s bond scheme. It became part of a political boxing match between a new prime minister on the ropes and an Opposition leader determined to throw some mischievous punches.
‘Let us be clear: the rescue package is as much for his reputation as it is for the business. If the bonds are not paid back, and if Northern Rock fails to meet its obligations, what is the total exposure? How much?’
‘The loans and bonds are secured against the assets of Northern Rock, which, as everyone understands, has a high-quality loan book. It is our intention to get the best deal for taxpayers: they will get their money back, and make a profit,’ said the prime minister.
Cameron then claimed the figure was ?55 billion — a neat rhetorical trick, achieved by lumbering every household in the country with a hypothetical second mortgage!
If the press around that China trip was extremely damaging to our bid (and it was) so was the political point-scoring in Parliament. The Liberal Democrats were particularly aggressive, hiding behind parliamentary privilege to insult and belittle us.
